Florida just got two steps closer to being flooded by naturalgas via two proposed pipelines. The competing Gulfstream andBuccaneer pipeline projects, which would extend from Mobile, AL,across the Gulf of Mexico to the west coast of Florida and tomarkets across the Florida peninsula, are neck and neck in theirregulatory race after receiving preliminary approvals onnon-environmental grounds from the Federal Energy RegulatoryCommission (FERC) yesterday.

FERC granted both projects favorable preliminary determinationsover the protests of Florida Gas Transmission (FGT) and severalresidential landowners and businesses. FERC said the routing issuesbought up by landowners and business would be dealt with during theenvironmental review process, which will be the key factor decidingthe fate of these projects.

FGT, which is planning a pipeline expansion of its own, hadclaimed there was insufficient evidence to show the projects are inthe public interest, and both therefore should be required to showspecific market need. However, FERC noted that because the twoprojects were filed under its optional certificate (OC) regulationsand prior to its February decision to phase out optionalcertificates, they are not required to show market need. Both willassume the financial risks of construction and any unused pipelinecapacity, the Commission noted.

The pipelines would traverse similar territory and would servesimilar needs in the state of Florida. Most observers agree theyare mutually exclusive projects. The first one to line up a marketfor capacity and avoid major environmental pitfalls will end up thewinner. Both projects are focused on an expected 9,000-10,000 MWincrease in mostly gas-fired power generation demand in Floridaover the next seven years. That increase is expected to requireabout 2 Bcf/d of additional gas supply.

Both would go into service in 2002: Buccaneer in April, andGulfstream in June. The $1.5 billion Buccaneer project wouldconsist of 533 miles of 36-inch diameter mainline, 142 miles ofvarious diameter laterals, 75,000 hp of compression and a liquidsseparation facility near where it would make landfall in Florida inPasco County. Buccaneer would transport a maximum of 900,000 Dth/d.Its firm transportation recourse rate is $24.6/Dth and itsinterruptible and parking and lending rates are both $0.8074/Dth.Buccaneer has not proposed a commodity charge. It has offerednegotiated rates.

The $1.7 billion Gulfstream project would transport 1.13 Bcf/dof gas through about 740 miles of mainline and laterals. It wouldrequire 120,000 hp of compression and would collect gas from pointsin Mississippi and Alabama.

The only major hitch in yesterday’s orders came in FERC’s reviewof Gulfstream’s rate design. Gulfstream has proposed hourly firmtransportation rates, entitling shippers to elect a maximum hourlyquantity (between 4.2 and 8% of their maximum daily quantity) fordelivery to a primary delivery point. The rates are specificallydesigned to service the fluctuating needs of power generators. FERChad no problem with the hourly rates. However, it made multipleother changes to the pipeline’s rate design.

It required Gulfstream to reduce its rate base by a total of$157 million, reflecting the elimination of $2 million Gulfstreamwanted set aside for cash working capital, the $150 millionGulfstream wanted set aside as “contribution in aid ofconstruction” for customers wanting to build laterals and otherfacilities, and FERC cut out $4.8 million because of amiscalculation in Gulfstream’s proposed allowance for funds usedduring construction (AFUDC). Gulfstream is required to revise itscost of service to reflect the elimination of $157 million from itsrate base, reducing the filed rate base of $1.63 billion to theCommission’s adjusted amount of $1.47 billion. Gulfstream has toadjust all the cost-of-service items affected, including return onequity, interest expense, depreciation, AFUDC calculation, etc.,and must recalculate its rates based on the revised cost ofservice.

Aside from Commission decision, perhaps the most important eventaffecting these two projects recently was the Florida Supreme Courtdecision last week that forced the cancellation of Duke Energy’s $160million, 514 MW power plant at New Smyrna Beach (see Daily GPI, April 24). The court ruling not onlyaffects the Duke plant — which incidentally would be part ofBuccaneer’s market since Duke is a partner in the pipeline project —but may block the installation of 25 other proposed merchant powerfacilities. Gas-fired power generation growth is the main impetusbehind the proposed pipelines.

“The megawatts — gas-fired megawatts — are still going to beneeded in Florida whether it’s the incumbent [utilities] ormerchant facility [developers],” said Robert Evans, president ofDuke Energy Gas Transmission. “We are very pleased with the orderand plan to go forward with the pipeline.

“The type of plants that the customers might build” may changebecause of the court decision, said Evans. “They may go tosingle-cycle instead of combined-cycle and some peaking plants maybe built instead which would give us a different type of businessthan the merchant plants, but the incumbents now are probably goingto build some of that new capacity.

“But it’s only a matter of time until they open the state up, Iwould guess. There are certainly things going on in the legislaturenow that would indicate that at some point there will be some[electric restructuring] legislation passed,” he said.

Evans said Buccaneer still is in serious negotiations withpotential shippers and expects to have 750,000 Dth/d of theproposed capacity under contract in the near future. In comparison,Gulfstream said it has firm agreements with 10 shippers for amajority of space in its proposed pipeline.

A spokeswoman for Buccaneer was in agreement with Gulfstream’sEvan on the impact of the court decision. She said Gulfstreamsponsors do not view the decision as a set back despite the factthat Duke is a partner in the pipeline and its proposed power planthas been blocked. It really doesn’t matter to Buccaneer who buildsthe power generation, said spokeswoman Paula Delaney, whether it’sDuke or Florida’s regulated utilities. Whoever does end up buildingthe new generation is going to need a major new source of naturalgas, and Buccaneer is prepared to be that new source, she said.

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